Albertson’s makes a bet on the future of online grocery shopping

Enthusiastic customer response to online grocery shopping in San Diego is encouraging Albertson’s Inc. to make the service available throughout Southern California.

Now that the dot-com frenzy has faded some merchants are proving out concepts that failed only because they didn’t have the proper management or financial controls. Latest case in point: online grocery shopping.

Albertson’s Inc. last month undertook a major expansion of online grocery shopping from San Diego to Los Angeles, Orange and Riverside counties. The expansion is an indication that online grocery shopping retains tremendous appeal to consumers. “We had a very soft roll out in San Diego in October and it has absolutely taken off since then,” says Fred Schuit, senior vice president of operations of Albertson’s Southern California Division. “That spurred us on.”

In the new three-county expansion area, customers can pick up their orders at 200 stores or have them delivered. In San Diego, customers can pick up orders at 60 stores. Online orders placed by 10 a.m. will be available for pick-up after 5 p.m. the same day; orders placed by midnight will be delivered or available for pick up the next day. Albertson’s charges $9.95 for delivery and $5.95 for pick up. “The vast majority of customers want the orders delivered,” Schuit says.

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Albertson’s fulfills all orders, even those to be picked up, at one of 15 centrally located stores that are larger and have more backroom area than the average store. Orders to be picked up are delivered from the fulfillment store to the pick-up store. Boise, Idaho-based Albertson’s has been testing online grocery shopping in Seattle since 1999. It started that test by fulfilling pick-up orders at individual stores but found the operation moved more efficiently if it fulfilled orders from a central point and delivered to the store, Schuit says.

Customers can choose from 16,000 products online vs. 45,000 in a store. But the service also has an area where customers can make special requests if they know there is something in the store that they want but they can’t find online. Albertson’s uses that information to fill the request and as a way of learning what customers want online. The fill rate on items has been nearly 100%, Schuit says. Order pickers will go to another store to get an item if the fulfilling store is out of it. Online orders have gone as high as $400.

Schuit says store pickers are finicky about fulfilling orders, especially on fresh products. “We have trained all the personal shoppers to pick the best and highest quality items,” he says. “We know that if we don’t do that, it’ll be the last time that customer shops online with us.” Albertson’s also allows customers to specify their desires, offering, for instance, bananas that are green, ripe or very ripe.

The advantage that supermarket chains bring to online shopping is that they are leveraging their infrastructure. Previous efforts such as the Webvan Group Inc.’s failed, analysts say, because they built and stocked distribution centers from scratch at the same time they were developing the market. It became the classic chicken-and-egg routine-which comes first, the customers or the fulfillment operation? The investment needed to develop both simultaneously just got out of hand, analysts say. “Our advantage is that we have a bricks-and-mortar network,” Schuit says.

Marketing vehicles

Albertson’s is marketing the online shopping service with newspaper and TV ads, direct mail, store signs and on 400 billboards. In addition, it considers its fleet of 45 delivery trucks part of the marketing effort. “They’re all over the place,” Schuit says.

Supermarkets are extremely competitive and always looking for ways to move market share through new services. Online grocery shopping may be one of those ways. Stater Bros. supermarkets, which has been offering home shopping since 1999, claims that 96% of its online shoppers are incremental to Stater Bros., the No. 4 supermarket chain in Southern California. And while Albertson’s says it’s too early to know if its online efforts are moving market share, “We wouldn’t be in this unless we thought we could,” says David Simonson, president of Albertson’s Southern California Division. “A percentage of our online customers have probably been shopping at Albertson’s, but a large number have been shopping with our competitors.”

The California program is part of a corporate initiative, so it’s certain that success there will echo throughout Albertson’s 2,400 stores in 33 states. But next up for expansion is the rest of Southern California and then Las Vegas, which also is in Simonson’s division. “I wouldn’t be surprised to see some of the other divisions doing this soon,” Simonson adds. “We are very, very pleased with the overall results.”